Whatever wording is used to justify an otherwise underhanded action, the implication is that people behave unethically in the workplace not because they're "bad people," but because they don't realize that what they're doing is unethical. Understanding why people make unethical decisions might possibly help companies reduce the number of these poor decisions in the future. For businesses, there are a variety of explanations offered for unethical behavior, including the attitudes at the top, ethical "blind spots, " and rationalizations.
We set out to conduct a study of IMA[R] (Institute of Management Accountants) members to help explore this issue further with funding from the IMA Research Foundation. In particular, we sought to examine two specific aspects of unethical behavior: tone at the top vs. tune in the middle and the theory of self-concept maintenance. (See "What Our Survey Asked.")
Tones vs. Tunes
One often-cited explanation for unethical behavior is the importance of the tone at the top, something that hasn't escaped the eyes of regulators. For example, the Sarbanes-Oxley Act of 2002 (SOX) requires that external auditors assess a company's tone at the top as part of its audit of the organization's internal control over financial reporting. A weak tone at the top is considered a material weakness under SOX Section 404, as it could imply an increased likelihood of fraudulent or misleading financial reporting. A substantial body of academic research supports this relationship.
The exclusive focus in past research on the tone at the top, however, ignores the fact that not all employees have direct interaction with the CEO, CFO, or board of directors. Many employees' firsthand experience with management is with their supervisor, not the CEO. There are examples from the recent past suggesting that the tune in the middle plays an important role in the likelihood of fraudulent or misleading financial reporting. In 2019, PPG Industries, Inc., a global supplier of paints and specialty coatings and materials, reached a settlement with the U.S. Securities & Exchange Commission (SEC) over charges that it intentionally manipulated its financial accounting multiple times to improve reported performance. After conducting an investigation, PPG fired its controller. The interesting part is that the SEC didn't impose any fine on the company or penalties on higher-ranking officers. The U.S. Attorney's Office also failed to pursue action against PPG or its executives. The implication is that individuals at "the top" didn't participate in or know about the scheme.
Also in 2019, food giant Kraft Heinz Company--after receiving a subpoena from the SEC following its failure to file its 2018 annual report on time--conducted an internal investigation into accounting irregularities related to its procurement practices. The SEC concluded that while the company needed to restate its earnings for 2016, 2017, and the first three quarters of 2018, no members of senior management committed any wrongdoing.
Both of these examples point to the importance of practicing management accountants and other financial professionals, companies, auditors, and regulators focusing on the tune in the middle and the tone at...